Marcus & Millichap: Rental Market to Hit New Levels in 2012

The reports on multi-family’s continued surge keep coming in, and the latest comes from Marcus & Millichap: While 2011 was a great year for the apartment sector, that momentum will likely continue in 2012 -- contingent on the health of the larger economy.

January 23, 2012
By Nicholas Ziegler, News Editor

Image courtesy Flickr user Creativity103

The reports on multi-family’s continued surge keep coming in, and the latest comes from Marcus & Millichap Real Estate Investment Services Inc. In the company’s 2012 National Apartment Report, the multi-family sector takes center stage amid a supporting cast that includes customers of prime renter age, the larger investment picture and, of course, jobs.

“The multifamily sector continued its marathon-like recovery in 2011, and has entered full expansion mode in virtually every market,” Hessam Nadji, managing director of research and advisory services for M&M, said. “Favorable demographics, the release of pent-up demand as young adults de-bundle from family and roommates and increased renter demand due to changing attitudes towards homeownership – which has become increasingly difficult in this country – drove more people into renting.  Although the private sector created 1.8 million jobs last year, even greater job creation will be needed to sustain the white-hot levels absorption recorded after the recession.”

The report tracked 44 markets across the country in its National Apartment Index, and noted that all locales are set to post effective rent growth in 2012. U.S. apartment vacancy is set to decline 40 basis points to 5 percent by year’s end, which will be coupled with a 4.8 percent increase in rent.

As Commercial Property Executive previously reported, a majority of survey respondents feel that multi-family is poised to be the main leader in the CRE space for 2012. In fact, a Morgan Stanley analyst went as far to call 2012 “the year of the landlord” due to rising rents and falling supply.

The performance of a given metro was strongly tied to the local economy. Markets with strong showings in the technology, financial and hospitality industries made the biggest positive moves in the report’s index. Seattle, at the eighth position, and Las Vegas, at number 36, each rose seven points from the 2011 index. San Jose and San Francisco occupy the top and number-two spots, respectively, followed by New York City at number three.

Barring any unforeseen shocks to the global financial markets, an array of lenders will continue to finance multifamily developments and acquisitions in 2012 against a backdrop of historically low interest rates, according to William Hughes, senior vice president & managing director of Marcus & Millichap Capital Corp. “Fundamentals and a favorable spread against Treasurys will promote multifamily development this year. Fannie Mae and Freddie Mac will remain the chief suppliers of apartment loans in an increasingly crowded field of providers.”

“In fact, monetary policy – both domestically and worldwide – should keep interest rates low for several years to come,” added Hughes. “Expect life companies and commercial banks to grow market share by pursuing assets with good credit features and stabilized revenue.”

Total apartment completions will reach nearly 85,000 units. Household formations are forecast to increase by 29 percent to an annual average of 1.4 million through 2015, aided by rising immigration and 2.1 million echo boomers entering the prime renter-age cohort.